Articles of Association
Articles of Association
- What it is
- The articles of association are the document setting out a company’s internal rules
- What it governs
- The powers of the governing bodies, decision-making procedure, members’ rights, transfer of shares
- Why it matters
- It is the articles that decide what you can and cannot do as a member
- When to read them
- Before entering the business and before buying a stake, not when a conflict has arisen
- A common gap
- No provision for a member’s exit or for resolving deadlocks
In plain words
The articles of association are the document setting out a company’s internal rules: how the governing bodies are formed and operate, which decisions require what majority, what rights and obligations members have, how shares are transferred and how profit is distributed.
For someone entering a business, this is the most important document after the share purchase agreement. It is the articles that determine whether you will be able to influence decisions, block an action you find unacceptable, and leave the company, and on what terms. A minority member without well-drafted articles may find themselves formally holding a stake but having no influence at all.
The most common gap is the absence of exit and deadlock resolution mechanisms. While the partners are on good terms, these clauses seem unnecessary. When relations sour, it turns out that it is impossible to leave the company and no decision can be taken because the votes are split equally. Such mechanisms need to be set out at the start.
When it is critical
What the articles should contain
- Powers of the governing bodies
- Procedure for convening meetings
- Required majority
- Rights and obligations
- Voting procedure
- Information rights
- Transfer of shares
- Pre-emption right
- Distribution of profit
- A member’s exit
- Deadlocks
- Dispute resolution procedure
How to approach the document
- 01Read it before entering the business
- 02Review it with a lawyer
- 03Check the exit mechanisms
- 04Agree amendments
- 05Register the new version
What you need to know
- The articles determine a member’s real rights
- Standard articles rarely take your situation into account
- Exit mechanisms are set out at the start
- Amending the articles usually requires a qualified majority
- Some matters may be governed by a separate shareholders’ agreement
Common mistakes
- Entering a business without reading the articles
- Using a standard document without adapting it
- Not providing for exit and deadlocks
- Accepting terms that deprive a minority member of influence
- Putting off amendments until a conflict arises
What this means for a BRIDGES client
If your business is the basis of income for an immigration application, its corporate documents will be examined. We look at them from that angle too: how clear the ownership structure is and whether it raises questions in the check.
Frequently asked questions
01 /What are the articles of association?
The document setting out internal rules: the powers of the governing bodies, the decision-making procedure, members’ rights, transfer of shares and distribution of profit.
02 /Why is it important to read them?
Because they determine your real rights as a member: the ability to influence decisions, obtain information and leave the company.
03 /Will standard articles do?
For simple situations — possibly. But they rarely take into account relations between partners and almost never provide for exit and deadlocks.
04 /What is a deadlock?
A situation in which no decision can be taken — for example, when the votes are split equally. The mechanism for resolving it is set out in advance.
05 /Can the articles be amended later?
Usually a qualified majority of members is required. Once relations have soured, assembling one is practically impossible.
06 /How do the articles differ from a shareholders’ agreement?
The articles are a public corporate document; a shareholders’ agreement is a private arrangement. They are often used together.
See also
Read next
This material has undergone editorial review by BRIDGES.
Entering a business with partners?
We will review the articles and your real rights before the deal — while the terms are still under discussion.